by Select Sales Center Property 
Home loan interest rates rise. When the policy interest rate is adjusted, this issue is bad news for anyone who is in the process of paying off a home loan or is planning to buy a home with a bank loan. Because every 1% increase in the policy interest rate will cause the total home loan payment burden to increase by another 7% by approximately. As a result, home buyers will have to pay higher installments than before or take longer to pay off the loan.
Why are mortgage interest rates increasing?
Most financial institutions usually offer home loan packages in the form of a fixed interest rate for the first few years, such as a fixed interest rate of 3.5% per year for the first 3 years, while the fourth year onwards is usually a floating interest rate, such as the MRR-1 interest rate. This means that our interest rate from the fourth year onwards will be the same, depending on the MRR interest rate at that time.
Although each bank sets different MRR interest rates, the consideration of increasing or decreasing MRR interest rates is affected by many of the same factors, such as deposit interest rates, inflation rates, and the policy interest rate set by the Monetary Policy Committee (MPC), Bank of Thailand. If there is an increase, it usually causes each bank’s MRR interest rate to increase accordingly.
The latest policy interest rate in Thailand, as of June 12, 2024, the Monetary Policy Committee (MPC) voted 6 to 1 to maintain the policy interest rate at 2.50% per year.
How much will the home loan installment increase when the home loan interest rate increases?
As mentioned earlier, the MRR interest rate will affect the installment payer when entering the year that the bank sets as a floating interest rate. Of course, the higher the interest rate, the higher the house installment payment will be. But how much higher it is, you can see from the following example.
Example 1: Haven’t started paying off the house yet.
Suppose the loan amount is 1 million baht, the interest rate for the first 3 years is fixed at 3.5%, while in the 4th year, the interest rate is = MRR. If the original MRR is 7% and the repayment period is 20 years (240 installments), the repayment will be 7,085 baht per installment.
*The home loan calculation figures in this table are preliminary interest rate calculations based on the specified conditions (installments 1-36 are fixed interest for the first 3 years).
But when the MRR interest rate in the 4th year onwards increases to 8% if the installments are still paid within 20 years, the installment payment will increase to 7,460 baht per installment or an increase of 375 baht per installment, or the total principal and interest must be paid 90,000 baht more per 1 million baht loan, or if you still want to pay the same installments of 7,085 baht, you must extend the installment period to 271 installments or 22-23 years.
*The home loan calculation figures in this table are preliminary interest rate calculations based on the specified conditions (installments 1-36 are fixed interest for the first 3 years).
The following table is a comparison of the repayment when the MRR interest rate in the 4th year onwards increases from 7% to 8%. The payment per installment will increase by 375 baht per installment. The total principal and interest payment will increase by 90,000 baht per 1 million baht loan if the payment is to be made in full within the same 2 years (240 installments).
| Money | MRR Interest Rate 7% | MRR Interest Rate 8% | Difference (Baht) | Difference (%) |
|---|---|---|---|---|
| Credit Limit | 1,000,000 | 1,000,000 | – | – |
| Total payment per installment | 7,085 | 7,460 | 375 | 5% |
| Total payment (240 installments) | 1,700,400 | 1,790,400 | 90,000 | 5% |
Example 2: The house has been paid off for 10 years.
Suppose the home loan interest package is the same as the first example, and the installment is also 7,085 baht per installment. In year 10, the principal has been deducted, leaving 612,706.31 baht of principal.
However, in year 11, the MRR interest rate suddenly increases to 8%. Paying 7,085 baht per month will reduce the principal because the interest that must be paid to the bank each month will increase. Therefore, the installment must be adjusted to increase the monthly installment for the remaining installments to 7,450 baht per installment (7,450 x 120 installments) to pay off the loan within 20 years as before.
| Money | MRR Interest Rate 7% | MRR Interest Rate 8% | Difference (Baht) | Difference (%) |
|---|---|---|---|---|
| Credit limit | 1,000,000 | 1,000,000 | – | – |
| Total payment per installment | 7,085 | 7,450 | 365 | 5% |
| Total payment (240 installments) | 1,700,400 | 1,744,200 | 43,800 | 3% |
From the above example, the adjustment of Thailand’s policy interest rate will affect the calculation of each bank’s MRR interest rate. If the interest rate increases, it will be negative.
If we are still deciding to apply for a home loan, our ability to borrow will be reduced because we will have to pay a higher monthly installment. From the previous loan of 1 million baht, it will be lower than that. Or if we are in the process of paying off a home loan and the interest rate increases, we will have to pay a heavier installment. From previously planning to spend money in other areas, we may have to postpone that plan first to reduce the risk that we will run out of liquidity.
Example 3: If the home loan interest rate increases by 0.25%, how much will the monthly payment be?
Another example from the Government Housing Bank: If the loan is 3,000,000 baht, when the interest rate increases by 0.25%, how many baht more per month must be paid?
| Interest rate | Monthly installment (baht) | The amount added when interest increases by 0.25% (baht) |
|---|---|---|
| Interest rate 6.00% | 20,000 | 0 |
| Interest rate 6.25% | 20,500 | +500 |
| Interest rate 6.50% | 21,000 | +500 |
| Interest rate 6.75% | 21,500 | +500 |
| Interest rate 7.00% | 22,100 | +600 |
| Interest rate 7.25% | 22,600 | +500 |
| Interest rate 7.50% | 23,100 | +500 |
| Interest rate 7.75% | 23,700 | +600 |
| Interest rate 8.00% | 24,200 | +500 |
| Interest rate 8.25% | 24,700 | +500 |
| Interest rate 8.50% | 25,300 | +600 |
| Interest rate 8.75% | 25,800 | +500 |
Reduce your home loan interest by refinancing
In the case where you are in the process of paying off your home loan and the interest rate is soaring, you may choose to refinance (but you must have been paying off your home loan for at least 3 years) because refinancing will help extend your life by reducing the interest rate. For the most part, if you are a good debtor who pays regularly, the new bank or the original bank will usually encourage you by giving a loan package with a lower interest rate than the previous package.
However, you must study the details clearly to see if the new package is more worthwhile. Overall, throughout the installment period, we must pay lower interest. And don’t forget to calculate the refinancing costs that will occur, such as property appraisal fees, 1% mortgage registration fees, etc. before making a decision.
